IFC’s active project consists of the development, construction, and operation of a 305.5 MW hydropower generation plant in the Reventazón river basin located in Siquirres, province of Limón, Costa Rica. The project is expected to generate around 1,400 GWh annually once operational.  IFC’s commitment is a US$100 million A loan.

The complaint, filed by a group of landowners neighboring the project, raises concerns related to impacts on biodiversity and the environment, natural habitats, project due diligence, and ultimately whether the environmental impacts were considered appropriately in the project. 

CAO found the complaint eligible for further assessment in September 2016. During CAO's assessment, a consensus could not be reached on engaging in dispute resolution, and in April 2017 CAO referred the case to its compliance function for appraisal.   

Given the similarity of the issues raised, CAO merged the case with a later case (Reventazon-02) for the purpose of its compliance appraisal. CAO released its compliance appraisal report in October 2017, and concluded that an investigation was merited in relation to the issues raised by the complainants around land acquisition.

CAO finalized its compliance investigation report in May 2019. CAO found that the acquisition of land from "non-vulnerable" landowners (69% of the households affected by the project) was a source of significant potential impact and required the client to apply Performance Standard 5 on Land Acquisition and Involuntary Resettlement (PS5). CAO’s investigation identified compliance issues at project appraisal in relation to this group of landowners, particularly regarding the requirement to provide compensation at full replacement cost. PS5 compliance issues persisted during project supervision, as IFC was aware of the company’s reliance on expropriation for these landowners, but did not question this approach in the context of PS5’s preference for negotiated settlements. IFC was also aware of concerns regarding the company’s approach to land valuation, leading to potential under-compensation, however, it did not ensure that the company’s valuation methodology was consistent with PS5 requirements. 

A Resettlement Completion Audit (RCA) provided a final opportunity for IFC to identify and correct any non-compliance with PS5 requirements. The RCA identified concerns regarding land acquisition from non-vulnerable landowners. As a result of the RCA, IFC was in the process of reviewing the information provided by the company to determine whether fifteen affected families were misclassified as non-vulnerable. 

On the balance of available evidence, CAO found that IFC lacks assurance that all displaced landowners were compensated for the loss of assets at full replacement cost and provided with other assistance to help them improve or at least restore their livelihoods as required by PS5. An underlying cause of the non-compliance identified in this report was IFC’s focus on the resettlement impacts of the project on vulnerable households, at the expense of ensuring compliance in relation to the (in this case larger) group of households deemed non-vulnerable. The objectives of PS5 and the requirement for compensation at full replacement cost apply equally to vulnerable and non-vulnerable households.

CAO’s compliance investigation report and IFC’s official response were published in October 2019. 

CAO released its monitoring report in April 2021. Despite delays, IFC documented engagement with the Company to address some of the non-compliance findings of CAO’s investigation. IFC hired a consultant to conduct a Gap Review of the land valuation methodology used by the Company against PS5 requirements. The Gap Review confirmed CAO’s findings regarding gaps between national law and PS5 requirements.  However, contrary to the commitment in IFC’s Management Response, IFC did not agree with the Company on corrective actions to address the shortcomings in PS5 implementation confirmed by the Gap Review. As a result, CAO’s investigation finding in relation to the under-compensation of landowners classified as non-vulnerable has not been addressed.

IFC documented engagement with the Company to review its internal policy and procedures regarding land acquisition and resettlement for consistency with Performance Standards. However, the outcome of this engagement in terms of aligning the Company’s approach to land acquisition and resettlement to IFC standards was unclear at the time of IFC’s exit in August 2020. 

At a systemic level, IFC reported to CAO that an internal guidance document for the enhanced appraisal for projects working with state-owned enterprises is currently under review. CAO cannot draw any conclusion in relation to this action, as the draft guidance was not complete at the time of writing and had not been shared with CAO. 

CAO expresses concern that IFC has exited its investment in Reventazón without ensuring that households who had land expropriated as part of this project were compensated as required under PS5. Despite identification of significant gaps in PS5 implementation, IFC did not engage the Company to establish corrective actions prior to exiting the project. Landowners whose cases remain in court have been excluded from assessments of PS compliance and any potential corrective actions. 

Overall, CAO finds that IFC’s response to this compliance investigation has only partially addressed its project-level non-compliance findings and has not addressed associated risk of under-compensation as identified by CAO. As a result, CAO concludes that the response is unsatisfactory. Nevertheless, CAO has decided to close its monitoring of the investigation considering that IFC no longer has an investment in the Company and IFC has not committed to any further project-level actions to address the non-compliance findings.